Tullow Soars as Partner Sells Stakes in East Africa Assets

Updated on
  • Shares of Tullow rise most in seven years in intraday trading
  • Deal seen assuaging investors' uncertainty over pipeline route

Tullow Oil Plc gained the most in seven years after Africa Oil Corp., its partner in East Africa oil exploration, sold stakes in some assets to Maersk Oil & Gas A/S.

The announcement reduces uncertainty about Tullow’s plans to build a pipeline that would take oil discoveries in Uganda and Kenya to export markets, said Brian Gallagher, an analyst at Investec Ltd. The Maersk deal shows that companies are willing to invest in the East African discoveries before the pipeline route is finalized, he said.

“They’ve done a deal, the price looks reasonable, that will make people a little bit more comfortable with East Africa,” Gallagher said by phone Monday.

Tullow gained as much as 19 percent in London, the most since December 2008 and closed 4.5 percent higher at 228.10 pence. Africa Oil soared as much as 48 percent in Stockholm trading, the most since May 2012.

Tullow has discovered about 800 million barrels of resources since 2007 in East Africa, with discoveries in Kenya and Uganda, according to Bloomberg Intelligence. The company is pushing for a pipeline through Kenya, while its partners Total SA and the Ugandan government are looking at a route through Tanzania.

Maersk Investment

“We are delighted that a company of the stature of Maersk has decided to invest in this project,” George Cazenove, a spokesman for Tullow, said by e-mail. “This deal is a tribute to the quality of the assets.”

Maersk will buy half of Africa Oil’s holdings in three onshore exploration licenses in Kenya and a further two in Ethiopia, the company said in a statement. Tullow operates four of the blocks. It will make an upfront payment of $365 million, including exploration costs, and a further payment of as much as $480 million contingent on the size of the resource after final appraisal and an agreed timetable for first oil from the Lokichar project.

“This is a big vote of confidence on the quality and materiality of these assets,” analysts from FirstEnergy Capital LLP said in a note. The announcement is “very positive” because it provides “imminent cash injection” and eliminates any funding concerns, they said.

Independent oil explorers have been battered as concerns mount about their ability to withstand the slump in oil prices. Tullow has fallen 45 percent so far this year, compared to an average drop of 8.2 percent across a group of its peers compiled by Bloomberg Intelligence.

The plunge in company valuations has amplified speculation that explorers and producers will be picked off in a wave of mergers and acquisitions. Apache Corp., an oil and natural gas company worth more than $18 billion, has received an unsolicited takeover approach, according to people familiar with the matter.